Australia’s fintech sector: growing fast but in need of continued nurturing

Since 2014, Australia’s fintech ecosystem has grown dramatically. The proliferation of mobile devices and digital platforms, falling barriers to entry and greater competition for the customer are reshaping the banking industry, accelerating the pace of change and fuelling the growth of technology based transactions. But above all, changing consumer behaviours and attitudes, led by the rising tide of millennials, and a move towards platform-based business models, will be the most fundamental driver of the evolution of the financial services sector.

Within this landscape, the number of fintech start-ups has risen from fewer than 100 in 2014 to 579 companies today. Most importantly, the great majority, roughly 87 percent, are Australian owned businesses.

Alongside these innovative startups, Australia’s existing financial institutions are well positioned to respond to the threats and opportunities presented by digital disruption. Major institutions are developing more sophisticated approaches including ‘build, buy and partner’ options. This is demonstrated by ongoing investment from banks such as CBA, NAB and Westpac in fintech businesses, either through VC or acquisition. All the major banks are trialling blockchain technology either individually or as part of consortiums. And outside of banking the major insurers, such as IAG, Suncorp, AMP and TAL, have either partnered with or invested in fintech.

The numbers paint a picture of an emerging regional powerhouse. Australian fintech investment has remained strong with $US675 million invested across 25 deals of various types in 2016. Sydney, which houses approximately 59 percent of all fintech companies in Australia, has been at the centre of fintech related VC investment, with US$171 million invested in startups between 2014 and 2016.

But of the executives interviewed for the report – only 7 percent said Australia is a fintech leader.

International competition is strong with London ranked as the largest fintech hub in the world employing 61,000 people and generating £6.6 billion in revenue (according to a May 2016 report). The Monetary Authority of Singapore (MAS) has allocated a budget of $SG225 million to aid in the development of the fintech ecosystem from 2016 to 2021. And in 2016, 35 New York Fintech companies raised a collective US$459m in venture capital.

But there are still new opportunities to successfully scale fintech growth within Australia.

From our discussions with industry leaders across financial services and fintech as well as regulators and government officials we identify some key opportunities:

Payments, Regtech and Blockchain are seen by the industry as key areas where Australia has potential to lead the world.

Government policy, support and vision for fintech can play a critical role, both in developing a fintech-friendly regulatory environment and helping to build and attract talent to the sector; and

While London is the global leader, Australia has the potential to become a major regional centre, and is seen as a credible hub in Asia.

Of the five recommended actions in the 2014 report, Unlocking the potential: The Fintech Opportunity for Sydney, two have been fully implemented: the establishment of a fintech hub, Stone & Chalk, and the creation of an industry association. In other areas, work has started. As a result, we have a fintech startup ecosystem active in 11 separate industry verticals, with payments & digital currencies (128 startups), lending (80) and wealthtech (78) leading the way. Other areas such as regtech, blockchain and insurtech are fast emerging categories.

What we have seen since the 2014 report is the growth of opportunities for fintech. With collaboration between financial industry leaders, startups, government and the university sector, the opportunity for Australia to be a regional fintech hub can become a reality.